cannabis leaf in hand close up

A review of public companies in the fast-growing cannabis industry has found widespread problems with disclosure to investors, the Canadian Securities Administrators (CSA) announced Wednesday.

A CSA staff notice outlines the results of the disclosure review and provides guidance to enhance companies’ compliance with their regulatory obligations.

“Given the significant growth and interest in the cannabis industry, it is imperative that investors be provided with transparent information about issuers’ financial performance and risks related to their operations,” says Louis Morisset, CSA chairman, and president and CEO of the Autorité des marchés financiers, in a statement.

“Our review shows that the quality of disclosure in this area needs to be enhanced, and we encourage cannabis issuers to use this publication as a guide to make improvements.”

According to the CSA’s notice, the review of 70 companies by regulators in Alberta, British Columbia, Ontario and Quebec found several areas where companies need to improve their disclosure.

Specifically, most companies with operations in the United States are not meeting the regulators’ disclosure obligations about the risks stemming from that part of the business. As a result, 74% of companies had to improve their disclosure, and 17% had to refile, the notice states.

Some companies are not consistently complying with the requirements for forward-looking information, such as the obligation to provide balanced disclosure, the notice adds, and all of the firms that regulators reviewed need to improve their fair value related disclosures.

CSA affirms disclosure policy for cannabis firms with U.S. ties

“The cannabis industry has benefited from increasingly permissive legal frameworks and has grown significantly as an emerging public market sector. Our review identified industry specific disclosure deficiencies, which are notable given the recent rapid growth of this industry,” the notice states.

The companies where inadequate disclosure was uncovered have either committed to improve their filings in the future, or refiled their disclosure, the CSA says.

The CSA notice also aims to highlight good disclosure practices for issuers in the cannabis industry, so that they can use this guidance to improve their reporting.

“In light of the relatively recent emergence of the cannabis industry, accounting and disclosure requirements and best practices are evolving,” the notice concludes. “The guidance outlined in this notice aims to help issuers understand their disclosure obligations in order to provide high quality information to the public.”

Regulators will continue to monitor and assess disclosure practices in the cannabis industry, the CSA says.